CEO's Statement

A Record FY2008 – Reflection of Innovation and Teamwork
FY2008 was a record year for our Group. We registered a net profit after tax and minority interests of S$59 million on the back of a record revenue base of S$554 million. Our order book as at 31 December 2008 stood at S$1.15 billion. These were achieved through our strict discipline of quality execution and delivery within schedule and budget as well as prudence in cost management.

FY2008 was also a challenging year for Hyflux. The bleak economic outlook has continued to affect all sectors in our economy and the general risk appetite of lending institutions. Accessibility to funding for all companies has become even more challenging. However, at Hyflux, we have been focusing on a few very critical areas.

The Group’s financial position remains strong. Return on equity climbed to 19% while net gearing remained at 0.54 times. In line with Hyflux’s sustainable business model, the Group divested five of our water and wastewater treatment plants to Hyflux Water Trust. This enabled the Group to recycle the capital to fund new projects and businesses.

We have also been focusing on building a very strong order book. Our customers now span widely across our key markets in Southeast Asia, China, India and the Middle East and North Africa (“MENA”) region.

We believe Hyflux will emerge stronger as a result of our strong business fundamentals, prudent cost structure and proven framework supported by cutting-edge membrane technologies and teams of committed and experienced staff.

Executing our Order Book
China and MENA will remain our key markets as the Group continues to deepen our market penetration in these regions.

In FY2008, the Group continued to enjoy strong growth in the municipal sector. Revenue from the municipal sector surged more than five folds to S$477 million, as compared to S$89 million in FY2007. This sector accounted for 86% of the Group’s revenue.

Revenue from the industrial sector, however, has contracted by 25% to S$76 million in FY2008 and accounted for 14% of the Group’s revenue. Going forward, while we expect industrial sales to reflect the weakening economic climate in China, we believe the positive momentum in the municipal sector should help sustain the Group’s growth.

China
China remains a stable and growing footprint for the Group. We will not be complacent but will continue to deepen our market penetration and expand our presence in China. Our business enquiries continue to be robust. This is a reflection of ongoing emphasis by the Chinese Government in improving accessibility and availability of potable water to more people in China while pushing for higher wastewater treatment compliance. Hyflux will remain disciplined and selective in growing our order book. We have secured RMB945 million worth of new water and wastewater treatment projects in the Jiangsu, Shandong, Tianjin and Hebei provinces in FY2008 and are poised to tap the growth potential in other municipals.

Middle East and North Africa (“MENA”)
Our landmark win to build the world’s largest membrane-based seawater desalination plant with a daily capacity of 500,000 m3 in Magtaa, Algeria, worth US$500 million, has propelled Hyflux’s ranking upwards in the global seawater desalination arena in FY2008. On top of this, Hyflux is building another seawater desalination plant with a daily capacity of 200,000 m3 in Tlemcen, Algeria. With these two projects, we will leverage on our market knowledge and network to identify more bankable projects in Algeria. Our plants in Algeria will be a global showcase for the Group.

Moving Forward
Hyflux will remain focused on staying ahead of the curve and will continue to strengthen our membrane technology platform and infrastructure competency as well as investment in human capital.

The Group will continue to invest effectively in strengthening our inhouse research & development (“R&D”) expertise. This organic growth is an integral part of Hyflux’s competitive edge as it enables a continuous and systematic process in achieving speed-to-market advantage, resulting in a seamless flow from R&D to commercialisation.

Our focus on prudent spending and efficient cost structure is part of the Group’s business strategy. This disciplined approach will put Hyflux in good stead, especially during these challenging times. As such, while many companies have implemented retrenchment or introduced salary reductions, the Group intends to hire progressively to support our strategic growth areas, particularly in the operations and maintenance (“O&M”) division. We foresee increases in staffing needs as more completed projects are added to our O&M portfolio.

While 2009 will be challenging, we are optimistic of the huge growth potential of the water sector in our key markets. Hyflux will continue to focus on project execution, quality growth and balance sheet strength. At the same time, we will expand our recurring earning streams, which include long-term O&M contracts.

We Make Things Happen
2009 is also a momentous year for Hyflux. This year marks our 20th anniversary milestone. In the past 20 years, we have seen the company grow from a humble beginning with a staff strength of three in Singapore to close to 1,900 worldwide. We also take great pride that, to date, Hyflux’s membrane products and systems have been installed in more than 1,000 plants in over 300 locations worldwide.

I would like to thank each of you – our shareholders, directors, partners, customers and staff – for supporting us through the past 20 years of success and growth. For our shareholders, we are proposing a first and final dividend of 3.43 cents per share, almost doubling that of FY2007. To our Hyflux staff, I thank each of you from the bottom of my heart. Your innovative spirit, commitment and unwavering dedication have made Hyflux what it is today.

Yes, the journey ahead will remain tough. But, as we stay focused on strengthening what we have put in place, continue to challenge ourselves and continue to break technological boundaries, we can make things happen. I believe Hyflux will emerge stronger and poised to tap new opportunities ahead.

Together, let us make things happen!

Olivia Lum
Group CEO & President and Managing Director